Alternative Energy Companies: Are All Green Companies Good Companies?
By S.R. Nunnally
In this article
Toyota's stock has climbed 86% since it started selling the Prius in America.
With 70% of the earth's surface covered in water, there's a lot of potential out there.
There are really only two publicly traded companies for investors to get exposed to this small industry… and one of them is not a great place to put your money.
Alternative Energy Companies: Are All Green Companies Good Companies?
Venture capitalists and average investors alike are pouring money into eco-friendly companies. And that means nearly any technology that can help reduce carbon emissions or has a decidedly green tinge is great for business, right?
Toyota's hybrids and all-around fuel-efficient vehicles produced enough sales to top long-time leading auto manufacturer General Motors. Toyota's stock has climbed 86% since it started selling the Prius in America.
Solar power has attracted a lot of interest from some big names. Gov. Arnold Schwarzenegger backed a solar initiative to have 3,000 megawatts of solar power generation in California by 2015.
The ethanol industry is also a popular sector for investors. Bill Gates shelled out $84 million for a large stake in Pacific Ethanol… before the company even started producing any ethanol.
But these are well-known sectors with a lot of history and proven technologies. Will these same successes hold true for smaller, niche technologies? Things like ocean energy, for example…
Ocean energy captures the energy found in waves, currents, tides, and wind. So ocean power can be generated in a number of different ways, from offshore wind farms to buoys… and in a number of different areas from out in the middle of the ocean to the mouth of a river.
With 70% of the earth's surface covered in water, there's a lot of potential out there. So just how much energy can ocean power generate?
Alternative Energy Companies: The World's Nuclear Power Times 40…
While estimates vary, the famous Jacques Cousteau estimated that it was the equivalent of 16,000 nuclear power plants. Even just a small portion of that potential could power the world.
There are a number of different ways companies can harness that potential. A myriad of concepts are currently being tested and developed. They range from underwater wind turbines to buoys to giant flexible tubes that float on top of waves. The concepts are very intriguing, but many of these ideas are just that: ideas.
Excluding offshore wind farms, many haven't been implemented on a large scale and the ones that have, have done so very limitedly.
In fact, there are really only two publicly traded companies for investors to get exposed to this small industry. And one of them is not a great place to put your money: That's Ocean Power Technologies.
The company's burdened with increasingly high costs. In the nine months through January of this year, Ocean Power Technologies increased its production development costs 56% to $4.1 million dollars. That's about three times the company's revenue. And administrative costs also rose. They went up 42% to $3.1 million.
Alternative Energy Companies: Lots of Competition
And even though the company has some really big customers like Lockheed Martin and the U.S. Navy, Ocean Power Technologies isn't the only player in the game… It's just one of the few publicly traded companies. In fact, there are about 30 companies crowding into this tiny market, and that's going to create a lot of competition.
With its high costs, I'm not sure how much longer Ocean Power Technologies can compete.
Despite raising more than $90 million in its IPO in April, the new company's future prospects aren't that great. The stock IPOed at the bottom of its predicted ranges at $20 a share. Currently, it's trading around $17.70. That's about 11% off from its opening price.
And a few days after the company IPOed, it dipped down as far as $13.80. Ocean Power Technologies could get back down to that point, which is about a 22% drop.
Bottom line, the company's high costs will make it less competitive in this niche market, and with a number of other -- and possibly better -- technologies out there, Ocean Power Technologies stands to lose a lot more than it can gain right now.
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S.R. Nunnally is a commodities expert and technical analyst for Taipan Financial News. She is the editor of Material Profits, a monthly newsletter providing in-depth, cutting-edge research in the commodities sector. She is also the founder of Material Profits Wildcatter, employing an elite group of aggressive investment strategies.
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